Saturday, January 17, 2009

“Focus” Group

A couple of weeks back, I got an e-mail from Robert Powell, who writes on personal finance for MarketWatch, and he asked an interesting question: specifically, what, in my opinion, were the top five retirement priorities that the Obama Administration should focus on?

Now, that’s a more complicated question than you might think at first glance. For instance, if you were to ask me what ONE thing should be dealt with, I could probably pull something hugely critical out of the air. Not that it wouldn’t be hard to come up with just one thing—but there’s a certain clarity to that process. However, once you get going, it’s harder than one might think to keep the list to five. Furthermore, there are LOTS of little things that you know would make the system better, but if you can only come up with five—and five for presidential-level involvement, no less—well, you also tend to focus on the big picture.

In any event, here’s my list:

(1) Focus on expanding coverage with the ACTIVE involvement of employers.
Everybody realizes that it is a problem that only about half of working Americans have access to a workplace retirement savings plan, and candidate Obama has talked about a mandatory payroll IRA. However, in my experience, while that may make it easier for more workers to save (they would be auto-enrolled, but could opt out), it still will be problematic for the employer to set that up for all workers, only to dump them in a retail-priced IRA. That's better than a poke in the eye with a sharp stick, but they'd be MUCH better served, IMHO, by getting the benefits of institutional pricing/fiduciary oversight that come with an employer-sponsored program.

Additionally, I think the creation of these alternatives to workplace programs will encourage employers that currently offer these plans to "step aside"—and let the government-sanctioned approach take over.

By the way—getting employers involved will mean that the government will need to spend some time understanding why more employers don't offer these programs, and it will mean that they have to understand that there is a difference between making it easIER to offer these plans, and making it truly EASY to do so. How about an “auto-enrollment” program that also makes it easy for plan sponsors to do the right thing?

(2) Shore up Social Security.

It's not only the third leg of that vaunted three-legged stool, it now represents about half of most retirees’ income (the shocking thing is how little income it is for that percentage). The future solution, whatever it is, needs to be based on a solid foundation. This is the place to start.

(3) Establish some kind of national retirement policy.

Pensions were never as widely available, or as "lucrative," as people sometimes mythologize them, certainly not in the private sector. As for 401(k)s, they were never designed to provide a single—or even a primary—source of retirement income. Social Security has "morphed" well beyond its original design and no longer accurately reflects the demographic realities of the nation. Let’s admit it: The “three-legged stool” is a rationalization, not a reality.

We need a plan—a blueprint, a roadmap—rather than the "necessity is the mother of invention" approach we have stumbled along with these past 50 years. I find it ironic that we regularly disparage participants for not developing a plan for retirement financing—when we, as a society, suffer from the same “it will work out somehow” perspective.

That plan needs to articulate what we as a nation expect our obligations—both personally, and as a society—to be. But, whatever plan we develop may—and should, IMHO—need to consider different solutions for varying generations of our society. Social Security may well have to be the primary solution for those over 55, but why should we limit ourselves to that for someone who has just entered the workforce?

(4) Help the free market fix health-care costs.

Several studies have documented the impact of health-care costs on retirement savings. Personally, I don't think a government-based solution fixes the “cost” problem, and it may well "break" the access those with health insurance currently enjoy. But you don't want people to have to drain their retirement savings for one extended stay in the hospital.

(5) Imbed financial education in the elementary school curriculum—and further.

As the father of three, I can tell you that, if kids were exposed to even half as much education about finances and the markets as they are classes on drugs and sex education, we'd all be much better served—and much better prepared to take responsibility for our financial futures, both pre- and post-retirement.

And, ultimately, isn’t that the soundest solution of all?

—Nevin E. Adams, JD

The MarketWatch column (I wasn't the only expert to contribute) is online HERE

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